Ease Of Doing Business: States To Emulate Each Other's Best Practices

Prime Minister Narendra Modi wants India to be in among the top 50 countries on the World Bank's Ease of Doing Business index. Even though improving India's rank from 142 (the current rank) to 50 in a short period of time would be difficult, it is quite possible to improve its performance significantly.

For instance, in the World Economic Forum's (WEF) global competitiveness ranking, India was ranked 55 out of 140 countries. This is 16 points higher than its earlier rank of 71. This is also India's best performance in the WEF's global competitiveness ranking.

Ease of doing business ranks economies from 1 to 189, with first place being the best. A high ranking means that a country's regulatory environment is conducive to business operation.

By trying to improve India's performance in World Bank's rankings, the government intends to undertake reforms that would improve the country's economic performance in general. The Centre wants states to participate in the process, improve their performance and share strategies with a proven track record with other Indian states.

Vital stats

In World Bank's Ease of Doing Business ranking, in 2015, India's rank was 142, among 189 countries. India's performance in parameters related to real estate in India is not impressive. While its ranking in dealing with construction permits was 184, the country was at 121 in terms of property registrations. While in getting credit, it was 36, it was 186 in enforcing contracts. This means that in dealing with construction permits and in enforcing contracts, almost all countries performs better than India.

The fact that much of property transactions in India happen in the informal economy is responsible for its low ranking. To establish formal property titles or handle other procedures like getting a construction permit is a difficult process in India. Economists such as Hernando De Soto estimate that the actual value of property transactions may dwarf the entire assets of the Indian government. By handing out property titles to slum dwellers alone, the Centre might be able to bring in a large fraction of India's urban population into the formal economy. If the process of issuing construction permits is made quicker, the proportion of formal transactions would also rise.

Learning from each other

In India, the final decision-making authority lies with the Centre. However, state and city governments have a more nuanced understanding of their local problems. For instance, while the programme to build homes for all is a national mission, state and local authorities influence the formulation and implementation of such policies. By urging them to perform better, the government will also be able to include the states in the overall decision-making process.

Also, while India has much to learn from countries which are above it in World Bank's Ease of Doing Business ranking, states which perform better in such rankings can also teach ones that perform poorly.

Rival benefits

When the government gave states a deadline till June 2015 to better their performance, states tried to outperform each other. This led to performance by states such as Jharkhand improve significantly. Gujarat is still on top of the list.
The Centre had also asked states to emulate Madhya Pradesh's performance on easing construction permits; Delhi, Gujarat and Maharashtra's performance on inspection reforms; and Punjab's single-window-clearance system. By replicating these models, states will be able to improve their performance of their real estate, too.